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Leading reinsurance brokers predict lower rates, relaxed terms at renewal

Leading reinsurance brokers predict lower rates, relaxed terms at renewal

MONTE CARLO, Monaco — Reinsurance buyers should expect lower rates and relaxed terms and conditions at upcoming renewals, according the three largest reinsurance brokerages.

During separate weekend briefings at the 2014 Rendez-vous de Septembre in Monte Carlo, Monaco, executives of Aon Benfield Group Ltd., Guy Carpenter & Co. L.L.C. and Willis Re Inc. all predicted that the reinsurance market would continue to soften.

With few significant property catastrophe losses in 2014, along with new capital from pension funds, hedge funds and private investors entering the market, and low frequency and severity for casualty losses, renewals will be tough for reinsurers, they said at the meeting, which marks the traditional start of the year-end renewal season.

There was about $570 billion of reinsurance capacity at June 30, an increase of 6% over the preceding six months, according to Bryon Ehrhart, Chicago-based CEO of Aon Benfield Americas, who spoke during a briefing in Monte Carlo on Sunday.

Of that total, about $59 billion is from nontraditional providers, an increase of more than 18% over the nontraditional capacity at the end of 2013, according to Aon Benfield figures.

The influx of new capital is having the biggest effect in the property catastrophe reinsurance market, with about 16% of the global $300 billion property cat reinsurance limit coming from the new capital, according to Guy Carpenter, which held a briefing Saturday.

But the increased capital also is affecting other lines, such as marine and casualty reinsurance, said Alex Moczarski, New York-based president and CEO of Guy Carpenter.

Even in aviation, where there have been several large losses this year, rate increases have been “muted” by the abundance of capacity in the industry, he said.

Cedents also are obtaining broader terms and conditions.

Reinsurers are offering more multiyear coverages, according to Mr. Ehrhart of Aon Benfield.

And in addition to offering multiyear deals, reinsurers are widening hours clauses — which restrict the time when claims from one loss can be included in the loss — and changing policy reinstatement terms in favor of cedents, said John Cavanagh, London-based CEO of Willis Re at a separate briefing Sunday.

But despite the lower prices and wider coverages, “the biggest challenge we face is a change in buyers' attitude: We are seeing clients buy less, not more,” Mr. Cavanagh said.

Cedents are retaining more capital and have improved premiums-to-surplus ratios, which makes them more comfortable retaining risks, he said.

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